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Product Description
Every stock market investor needs to be able to calculate value, profits, and cash flow in order to make basic decisions like whether to buy, hold, or sell. But it’s easy to get intimidated by all the ratios and formulas, especially when incorrect calculations can lead to costly investment mistakes. The Stock Investor’s Pocket Calculator simplifies the math behind successful equity investing. Containing over 100 ratios and formulas, the book translates them… More >>

The Stock Investor’s Pocket Calculator: A Quick Guide to All the Formulas and Ratios You Need to Invest Like a Pro

Statement cash flow indicates how the cash position of the firm has changed during the period covered by the income statement. Understanding the statement cash flow can help you in stock investing. The statement of cash flows breaks down the sources and uses of cash into three components: operating, investing, and financing activities. From this, you can know how the company uses and gets its money, like:

• Are they using their money for expanding the business (investing activities) or not.
• How much money do they get from their operation (net income).
• How much money do they pay for their debt.
• How much money do they pay dividend.

By answering to those questions, we should know how the company is doing. Are they going to the right direction or not. If you think they are heading to the right direction, you might consider buying their stock.

Troubled stock can bring you high profit. However, investing this stock is very risky. Troubled company can correct them self or can go into bankrupt. Therefore, before you invest in this stock, you need to analyze the company:

1. Assess company’s performance from its income statement, cash flow statement, and debt-to-equity ratio. An increasing profit may show signs of improvement. An increasing debt-to-equity ratio means that the company has higher risk than before. The company might try to solve their problem by borrow more debt, which is dangerous. They can get deeper into trouble.
2. Does the company have good management? Do they have great competitive advantage? If yes, then the company has high probability to overcome their problem. 
3. Check the company probability for going into bankrupt. Edward Altman developed a Z-score model based on financial ratios to predict whether a company will go into bankrupt or not.

What?
Fundamental analysis is finding the fair value of a company. The calculation is done by using the time of money concept, which is money now is better than money in the future. By knowing how is the cash flow, the in and out of money, you can count for it’s fair price. That’s the difficult thing to do, because you need to predict how much profit will the company make.
How?
The easiest way to do this is to get valuation from your investment firm. They usually have their own research department, and can give you the target price or fair price of a stock. The hard way is to calculate the fair price by your self. To do this, you will need good financial knowledge, and master the industry condition. Choosing big companies with good fundamental, finance performance will bring lower risk, but not always high return. The analysis can be done through economic indicators such as GDP, inflation, interest rate, and oil price.
How’s the performance?
If your calculation and prediction for the fair value of a stock is true, then the performance will be good. If you know that current price is 50, and you believe that the fair price is 100, you might expect 50% increase in the price.
For who?
Fundamental analysis is for people with long term horizon. You need to be patient, waiting for the stock price to rise. If you know that it’s fair value is 100, and currently 50, then just buy the stock and wait until it reach 100, because maybe you know that the company will make a certain profit.